politics of competitiveness
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Lecture on the Politics of International Competitiveness for Emeriti House, Indiana University, October 16, 2013TRANSCRIPT
The Politics of The Politics of International CompetitivenessInternational Competitiveness
Jeffrey A. HartJeffrey A. Hart
October 13, 2013October 13, 2013
Contact informationContact information
Department of Political ScienceDepartment of Political Science
Woodburn Hall 210Woodburn Hall 210
Bloomington, IN 47405Bloomington, IN 47405
Tel: (812) 855-9002Tel: (812) 855-9002
Email: Email: [email protected]
Web: Web: http://mypage.iu.edu/~hartj
My books on this topic:My books on this topic: Rival CapitalistsRival Capitalists (1992) (1992) Managing New Industry CreationManaging New Industry Creation (2002) (2002) Technology, Television, and CompetitionTechnology, Television, and Competition (2004) (2004)
What is International What is International Competitiveness?Competitiveness?
Means something different at the national level than at Means something different at the national level than at the firm or industry levelthe firm or industry level
Economists tend to equate national competitiveness with Economists tend to equate national competitiveness with changes in productivitychanges in productivity
Industry analysts tend to look at:Industry analysts tend to look at: Profitability and market share dataProfitability and market share data Frequency of industrial crisesFrequency of industrial crises Creation of high value-added employmentCreation of high value-added employment
World Economic Forum World Economic Forum DefinitionDefinition
We define competitiveness as the set of We define competitiveness as the set of institutions, policies, and factors that institutions, policies, and factors that determine the level of productivity of a determine the level of productivity of a country.country.
Source: WEF, Source: WEF, Global Competitiveness Global Competitiveness ReportReport 2013, p. 4. 2013, p. 4.
GCI Top Twelve 2013GCI Top Twelve 2013
WEF on US CompetitivenessWEF on US Competitiveness
US Problematic FactorsUS Problematic Factors
CritiqueCritique
The World Economic Forum approach is based on The World Economic Forum approach is based on conservative economic notions of competitiveness and conservative economic notions of competitiveness and undervalues the importance of technology and undervalues the importance of technology and innovation.innovation.
Industry-level approaches are less susceptible to these Industry-level approaches are less susceptible to these failings, but may not aggregate well to national level failings, but may not aggregate well to national level assessments.assessments.
It may be more reasonable to assert that problems of It may be more reasonable to assert that problems of competitiveness are regional rather than national.competitiveness are regional rather than national.
Laura Tyson’s Definition of Laura Tyson’s Definition of CompetitivenessCompetitiveness
A nation’s competitiveness is the degree to A nation’s competitiveness is the degree to which it can, under free and fair market which it can, under free and fair market conditions, produce goods and services that conditions, produce goods and services that meet the test of international markets while meet the test of international markets while simultaneously expanding the real income of its simultaneously expanding the real income of its citizens.citizens.
Declining Labor Costs in the Declining Labor Costs in the US, Japan and the Euro AreaUS, Japan and the Euro Area
Problems of International Problems of International Competitiveness in the 1980sCompetitiveness in the 1980s
Conflict between the US and Europe over wide Conflict between the US and Europe over wide body jets (Airbus v. Boeing)body jets (Airbus v. Boeing)
Trade conflicts between the US and Japan over Trade conflicts between the US and Japan over autos, semiconductors, and other industriesautos, semiconductors, and other industries
Conflict over exchange rates (mainly US v. Conflict over exchange rates (mainly US v. Japan)Japan)
Global ProductionShare DataFor the Steel,Motor Vehicle,and Semicon-ductor Industries
The Rise of AsiaThe Rise of Asia Japan, the countries of Southeast Asia, and Japan, the countries of Southeast Asia, and
China rapidly in manufacturing competitivenessChina rapidly in manufacturing competitiveness Their per capita GDPs rose sharply alsoTheir per capita GDPs rose sharply also In some high technology industries, however, In some high technology industries, however,
the US and Western Europe remained dominant the US and Western Europe remained dominant (e.g. biotech, aerospace, pharmaceuticals)(e.g. biotech, aerospace, pharmaceuticals)
Asians are now making great efforts to catch up Asians are now making great efforts to catch up in these industries also (e.g. flat panel displays)in these industries also (e.g. flat panel displays)
Production Shares of TFT LCDs by Location, 1993-2005, in Production Shares of TFT LCDs by Location, 1993-2005, in percentagespercentages
Source: Thomas Murtha, Stefanie Lenway and Jeffrey Hart, Managing New Industry Creation (Stanford, Calif.: Stanford University Press, 2001) updated.
Competitiveness as a Political Issue Competitiveness as a Political Issue after the Financial Crisis of 2007-8after the Financial Crisis of 2007-8
In the US, the main problem is currently defined In the US, the main problem is currently defined politically in terms of competition with China.politically in terms of competition with China.
In Europe, the relative competitiveness of In Europe, the relative competitiveness of different countries and regions in Europe is different countries and regions in Europe is combined with concerns over competition with combined with concerns over competition with China. China.
As in the 1980s, there is resistance in the US As in the 1980s, there is resistance in the US and Europe to further liberalization of trade.and Europe to further liberalization of trade.
Competitiveness as a Political Competitiveness as a Political IssueIssue
People on the Right look primarily at price People on the Right look primarily at price competitiveness without considering competitiveness without considering issues of productivity and quality of issues of productivity and quality of employment.employment.
People on the Left are more concerned People on the Left are more concerned with wages and the quality of employment.with wages and the quality of employment.
Left-Right Differences over Left-Right Differences over Enhancing CompetitivenessEnhancing Competitiveness
Right Left
Role of the state Minimal Pro-industrial policies
Importance of relative labor costs
High Low
Macroeconomic strategies
Austerity budgets Deficit spending
Technology The state is incapable of picking winners
The state should promote innovation: infrastructure, education, and R&D spending
Taxation Reduce rates Enough to pay for the above
Key QuestionsKey Questions
Is it possible for governments to promote the growth Is it possible for governments to promote the growth and development of high-tech industries?and development of high-tech industries?
If so, when and where, and under what conditions?If so, when and where, and under what conditions? When is industry-promotion “unfair”?When is industry-promotion “unfair”?
Use of subsidies to gain market advantageUse of subsidies to gain market advantage State trading (diplomacy used to promote trade unfairly)State trading (diplomacy used to promote trade unfairly) Suppression of wages by restrictions on the ability of trade Suppression of wages by restrictions on the ability of trade
unions to organize and bargainunions to organize and bargain
What is the importance of macroeconomic variables What is the importance of macroeconomic variables such as the exchange rate that are controlled to some such as the exchange rate that are controlled to some degree by national governments?degree by national governments?
Industrial PoliciesIndustrial Policies
Includes a wide variety of policy Includes a wide variety of policy instruments that are intended to advance instruments that are intended to advance the international competitiveness of the international competitiveness of “national champion” firms, such as:“national champion” firms, such as: Investment subsidiesInvestment subsidies Public R&D expendituresPublic R&D expenditures Science parks and free trade zonesScience parks and free trade zones Export incentivesExport incentives
Theoretical approaches:Theoretical approaches:
Neoclassical (industrial policy is bad and Neoclassical (industrial policy is bad and counterproductive)counterproductive)
Regulatory State (regulation necessary for Regulatory State (regulation necessary for markets to work properly, but industrial markets to work properly, but industrial policy is still bad)policy is still bad)
Developmental State (industrial policy is Developmental State (industrial policy is useful for catching up)useful for catching up)
Competition State (industrial policy has to Competition State (industrial policy has to take globalization into account)take globalization into account)
The Developmental State vs. the The Developmental State vs. the Regulatory StateRegulatory StateDevelopmentalDevelopmental RegulatoryRegulatory
Type of Type of BureaucracyBureaucracy
Elite, InsulatedElite, Insulated Transparent, Transparent, AccountableAccountable
Support for New Support for New IndustriesIndustries
ExtensiveExtensive LimitedLimited
Use of State-Use of State-Controlled BanksControlled Banks
ExtensiveExtensive LimitedLimited
Stance w/regard Stance w/regard to Private Firmsto Private Firms
TutellaryTutellary RegulatoryRegulatory
The Impact of Globalization on The Impact of Globalization on National Economic StrategiesNational Economic Strategies
To remain internationally competitive, firms have To remain internationally competitive, firms have adopted global production strategiesadopted global production strategies
Need to be present in countries with high growth Need to be present in countries with high growth rates of domestic demandrates of domestic demand
Even regulatory states have to compete for Even regulatory states have to compete for inflows of foreign direct investmentinflows of foreign direct investment
Developmental states cannot succeed with pure Developmental states cannot succeed with pure national champion strategiesnational champion strategies
Example of GM in ChinaExample of GM in China
2010 sales of 2.3 million vehicles in China2010 sales of 2.3 million vehicles in China World-class production facilities (joint World-class production facilities (joint
venture with SAIC)venture with SAIC) Modified Buick as a chauffeur-driven Modified Buick as a chauffeur-driven
luxury carluxury car Not competing with low-end national Not competing with low-end national
champions like Geelychampions like Geely
Globalization in Motor VehiclesGlobalization in Motor Vehicles
Demand has shifted to Asia, and Demand has shifted to Asia, and especially to Chinaespecially to China
US and European demand is fairly flatUS and European demand is fairly flat So growth in global demand is increasing So growth in global demand is increasing
thanks to higher sales in Asian and other thanks to higher sales in Asian and other developing countriesdeveloping countries
GM can remain ahead of other producers GM can remain ahead of other producers only by servicing those marketsonly by servicing those markets